A financial appraisal of AMCOR Ltd and Silgan Holdings Inc.
Summary
This report considers AMCOR Ltd and Silgan Holdings Inc. It focuses on the qualitative as well as quantitative aspects of the business and considers some financial aspects. The main company under consideration is AMCOR Ltd and Silgan Holdings Inc. is considered to be a close competitor of the company. Both the companies operate in the consumer goods packaging industry in Australia. The packaging industry has recently expanded in Australia as well as around the world and there have been a number of entrants into the industry during recent years. Despite increased competition, the demand has remained extremely high. This has allowed competition to remain at acceptable levels and companies have been able to maintain their profits. This report will consider the recent financial information of both the companies during the years 2013 and 2014 and will calculate a number of financial ratios in order to provide insight regarding the performance and position of both the companies. At the end of the report, conclusions will be drawn and a summary of the content of the report will be given that will highlight the limitations in reaching the results embedded in this report.
Brief background of the companies
AMCOR Ltd, regarded as one of the top companies in the consumer goods packaging industry, has been in the market since the late 1870s and has been able to capture a large part of the market. Moreover, due to the latest increase in the demand of this sector throughout the world, companies have been able to make consistent profits and increase their revenue to a large extent. The company’s headquarters are in Victoria, Australia. AMCOR has made consistent profits for its shareholders over the years.
The other company under consideration is Silgan Holdings Inc. which has also been operating in the consumer goods packaging sector. Although the company was founded relatively recently in 1987 and has rather less experience than AMCOR Ltd, it has been able to capture a sizeable portion of the market and lately offered AMCOR Ltd real competition. The company has also shown consistent profits and is now regarded as one of the leading companies in the sector.
Overview of the recent stock price of both companies
AMCOR Ltd has a current stock price of $13.31 and is listed on the Australian Stock Exchange (ASX). An overview of the company’s stock price during the previous few years shows that its stock price has not fluctuated much and has always been slightly higher than $13. This shows overall consistency within the company over the years. Although the industry related to consumer goods packaging has changed over the years, the company has been able to sustain its overall stock price in the market. This is also an indication of consistent profits generated by the company and illustrates that AMCOR Ltd has been able to dominate the market over the years (Yahoo Finance, 2015).
On the other hand, the current stock price of Silgan Inc. is $55.10 which shows that the company is positively regarded in the market. If a comparison of the previous two years is made, the stock price of the company has shown an upward trend. In 2013 it was $40 – $43 which increased to almost $51 in 2014 and has been increasing since then. This has been a positive sign for the company and shows that the reputation of the company in the market has been positive. Furthermore, the increase in the stock price of the company also shows that existing as well as potential shareholders have confidence in the company (Market Watch, 2015).
Impact of global and local economic conditions
Since the recession, there has not been much change in global economic conditions and the economy has started to revive. When considering the local factors, AMCOR Ltd and Silgan Holdings Inc. have been subject to different factors such as continuing currency fluctuations and changes in Australia’s interest rates. However, the impact of these factors on the operations or the financials of the companies has not been large for either company and therefore is negligible.
Industry trends in the consumer goods packaging sector
Industry trends have changed over the years and with the passage of time. Increased rules and regulations related to the overall hygiene and safety in companies associated with consumer packaging have increased sharply and a number of new rules have been established with which the company must comply in order to be sustainable the longer term. Due to the increased emphasis on sustainability and related factors, all the companies in the industry are now required to cope up with their respective corporate social responsibilities. A number of trends such as an emphasis on healthy living, cost effective shopping as well as increasing concerns with green consumables have had a large impact on the overall consumer good packaging industry (Smithers, 2013). Therefore, companies are now required to meet all these new trends and as a result, the overall expectations have increased sharply. Companies are now required to not only focus on increasing profits and the overall wealth of the shareholders, but also on the wider impact of their operations as well as a wider range of stakeholders both internal and external to the company.
Quantitative Component
The quantitative component of this report includes an evaluation of the different aspects of the financial performance and position of both the companies for a period of two years – 2013 and 2014. The section will consider a number of different organizational factors and will use different financial ratios to evaluate the profitability and liquidity as well as the gearing of the companies under discussion.
Managing the financial aspects is one of the key factors that determine the success or failure of an organisation. It is therefore important for companies to identify and manage their operations as well as possible in order to yield positive results (Petty et al., 2012). Effective financial management makes it easier for businesses to evaluate different aspects of their operations and achieve higher efficiency and effectiveness by applying sufficient safeguards where necessary (Vucicevic, 2012). The principles and guidelines introduced by financial management have therefore been one of the main drivers of success for a number of organisation and have allowed companies to achieve their objectives in the longer term (Haslem and Curran, 1971).Financial aspects of AMCOR Ltd
The ratios calculated for the company are used in order to evaluate its profitability, liquidity and gearing for the years 2013 and 2014 respectively (AMCOR Ltd, 2014).
For the year 2013, the gross profit of the company was almost 18.5% which increased to 18.9% in 2014. This shows that the company was able to maintain consistent profitability despite increasing costs and competition. The slight increase in the profits for 2014 indicate that the company was able to manage its cost of sales effectively for the year, while at the same time, increase its sales compared to the previous year. Similarly, the net profit margin of the company also increased slightly for the year 2014 to 6.82% compared to 6.22% in 2013. This shows that AMCOR Ltd was also able to control its non-production costs along with the cost of sales.
The ratio of the company was almost one for 2014 while it was 0.51 in 2013. The quick ratio also increased to 0.61 times from 0.51 times in 2013. This illustrates that the overall liquidity of the company improved in recent years and the company became more efficient.
The gearing of AMCOR Ltd increased to a significant 60%, compared with about 47% in 2013. This was a negative sign for the company and indicated that the company was heavily dependent on debt in order to continue its operations. Furthermore, ACMCOR Ltd’s overall interest costs and total finance costs also increased because of this increased reliance on long term debt as a source of finance.
Financial aspects of Silgan Holdings Inc.
The ratios calculated for the company are used to evaluate its profitability, liquidity and gearing for 2013 and 2014 respectively (Silgan Holdings Inc., 2014).
In 2013, the gross profit margin for Silgan Holdings Inc. was around 14.8% which increased to 15.4% in 2014. This was a positive sign for the company and illustrated that Silgan Inc. was able to control its cost of sales and at the same time increase its overall sales revenue in 2014. Moreover, the net profit margin of the company also increased sharply and was then 4.86% which had been almost 4% in 2013. Therefore, Silgan Holdings Inc. was able to not only control its cost of sales, but also its non -production costs while at the same time increase its sales revenues for 2014.
The current and quick ratios of the company were stable for both the years and were around 1.74 times while the quick ratio was almost 0.90 times. This showed consistency in the liquidity and illustrated that the company was able to maintain a sound liquidity position in recent years.
The gearing ratio of Silgan Holdings Inc. was more than that of AMCOR Ltd and was almost 70% for 2014. This yet again showed high dependence on long term debt as a source of financing the operations of the company and indicated that the company had paid high finance costs. Silgan Holdings Inc. needed to make sure it controlled this position in order to minimize the chances of inflation in its finance costs in the upcoming years.
Conclusion
In conclusion, the consumer goods packaging market across the globe has been booming recently and Australia has been no different. Although there has been increased competition in the market, the increased demand has led to companies ensuring adequate turnover and good profits, thereby maximizing the wealth of their shareholders.
AMCOR Ltd is one of the giants in the industry and has been able to achieve consistent profits over the years. Furthermore, the liquidity status of the company has also been sound and the overall stock price has been maintained. The gearing condition of AMCOR has recently declined and the company has raised considerable amount of long term debt. Therefore, AMCOR Ltd has to make sure it controls the balance between its sources of finance and does not totally depend on long term debt in order to continue its operations effectively and efficiently. Moreover, the company has to limit its overall debt raised in order to limit its finance costs and increase the overall profits and thereby, the wealth of its shareholders.
On the other hand, the competitor company, Silgan Holdings Inc., has also been able to maintain its reputation as one of the leading companies in the consumer goods packaging industry and has offered real competition to AMCOR Ltd. The company has been able to achieve consistent profits and the overall liquidity of the company is also sound. There are however, a few concerns regarding the high gearing of the company and the overall high finance costs.
From an investor’s point of view, both the companies are achieving profits and therefore are attractive for investment. However, it can be derived from the financial analysis that the overall profitability of AMCOR Ltd was greater than that of Silgan Holdings Inc. in both 2013 and 2014 and similar results are expected in the future. Furthermore, the stock price of AMCOR was much less than that of Silgan Holdings Inc. and was slightly down than average when this report was compiled. Therefore, investors would do well to invest in AMCOR Ltd.
Strengths, weaknesses and limitations of the analysis
The analysis used live data of both the companies and a number of key ratios have been calculated in order to analyse the financial position and performance of both companies under consideration. Furthermore, reasonable judgements and assumptions have also been taken in order to achieve the desired results wherever necessary during the analysis.
Although the analysis has been made using credible sources and references, there are certain weaknesses and limitations embedded in the analysis itself.
Firstly, the data used in order to conduct the financial analysis of the company has been retrieved from secondary sources using the annual reports of the company as well as the help of financial websites. Secondary data is data which has been interpreted already by a third party and is not in its raw form. Therefore, it can be regarded as one of the weaknesses and limitations of the report and analysis itself.
Secondly, limited insights regarding both the companies under discussion were available during the analysis. This means that there might be some information or data which is internal to the organisation and is not available, however, that data might have its own effect on the analysis and the report itself. Therefore, it is one of the key limitations of this analysis.
Lastly, the analysis includes the implementation of judgement and a few assumptions have also been taken. Therefore, the results concluded and discussions and evaluations made might vary from person to person due to difference in judgements and opinions. This can also be regarded as one of the weaknesses of the analysis.
References
AMCOR Ltd, 2014. Annual Reports Archive. [Online]
Available at: http://www.amcor.com/about_us/investor_info/reports_presentations/about_investor_anrep/
[Accessed 9 October 2015].
Market Watch, 2015. Silgan Holdings Inc.. [Online]
Available at: http://www.marketwatch.com/investing/stock/slgn
[Accessed 9 October 2015].
Silgan Holdings Inc., 2014. ANNUAL REPORT. [Online]
Available at: http://phx.corporate-ir.net/phoenix.zhtml?c=74726&p=irol-reports
[Accessed 9 October 2015].
Smithers, 2013. Insight: Five Consumer Packaging Trends Shaking up the Industry. [Online]
Available at: http://www.smitherspira.com/news/2013/september/five-consumer-packaging-industry-trends
[Accessed 9 October 2015].
Yahoo Finance, 2015. AMC.AXAmcor Ltd. [Online]
Available at: https://beta.finance.yahoo.com/quote/AMC.AX
[Accessed 9 October 2015].
Haslem, J. and Curran, W. (1971). Principles of Financial Management. The Journal of Finance, 26(1), p.209.
Vucicevic, D. (2012). Theoretical aspects and basic principles of financial analysis. Skola biznisa, (2), pp.82-96.
Petty, J, Titman, S, Keown, A, Martin, J, Martin, P, Burrow, M & Nguyen, H 2012, Financial management: principles and applications, 6th edn, Pearson Australia